One big economic reason to have an Aquino-free nation

One of the biggest reasons why even an important sector of our business community can’t wait to have President Benigno S. Aquino 3rd step down, and for a totally new regime to take over, involves our territorial dispute with China in the West Philippine (South China) Sea.

To bolster his regime, Aquino roused—quite successfully I would think—the Filipino nationalist sentiment by his belligerent rhetoric against China regarding our claims on the Spratly islands, as well as the Scarborough Shoal. By filing an arbitration case against China on the dispute in January last year, and pressuring Asean to take a stand against China over it, he has closed off any bilateral resolution to the dispute.

In his second state of the nation address he boasted: “Now, our message to the world is clear: What is ours is ours; setting foot on Recto Bank is no different from setting foot on Recto Avenue.”

Both the Americans and the Chinese must have shaken their heads in disbelief at such a stupid analogy made by our President. His reference to Recto Avenue may sound smart-alecky, but it was childish braggadocio, revealing his ignorance of our territorial dispute.

Recto Avenue is a main thoroughfare in metropolitan Manila on our biggest island of Luzon. On the other hand, there is hardly any dry land to step on at Recto Bank, internationally called Reed Bank. It is the 8,866 square kilometers of waters 9 to 45 meters in depth, atop a geological formation called a Guyot (after Swiss-American geologist Arnold Henry Guyot) consisting of submerged volcanic mountains and coral reefs.

The Mutual Defense Treaty of 1951 – a very brief pact of just 625 words, or less than half this column’s length – requires the US to come to our rescue if there is an “armed attack” against the Philippines.

Recto20141205
What’s the story? Reed (Recto) Bank in disputed waters, potentially a huge oil and gas find. Inset: Right top executive Manuel Pangilinan with his former close associate now Foreign Affairs secretary Alberto del Rosario. One irks the Chinese, the other woos them.

However, Article V defines what an “armed attack” is, which is one “on the metropolitan territory of either of the Parties, or on the island territories under its jurisdiction in the Pacific Ocean, its armed forces, public vessels or aircraft in the Pacific.”

Reed or Recto Bank isn’t a metropolitan territory or an island territory. We have claimed the area as part of our 200-mile exclusive economic zone, as defined by the United Nations Convention of the Law of the Sea (UNCLOS) of 1982. The 1951 Mutual Defense Treaty hasn’t been revised to include a new definition of our territory under UNCLOS. Worse, the US hasn’t ratified UNCLOS; therefore, how could it invoke what for it is a non-existent treaty?

Based on the treaty’s Article V, the only way for us to draw in the Americans to defend us in Reed Bank is to provoke the Chinese to attack our “public vessels.” Probably that was the real motive of our puny Coast Guard boats confronting Chinese ships a few months ago.

Aquino, however, may have unwittingly highlighted a key element in the dispute that could have tremendous impact on our economy: the Reed Bank. It is believed, but not by everybody, to have huge oil and gas deposits with the most optimistic claim that its gas deposits could be five times bigger than the nearby Malampaya gas field, which has been supplying Luzon 40 percent of its energy requirements.

Not academic
These are not just academic estimates. Philex Petroleum – which is ultimately controlled by the Indonesian conglomerate, the Salim group, and headed by well-known top executive Manuel V. Pangilinan – has teamed up, through its UK subsidiary Forum Energy with billionaires Enrique Razon and Roberto Ongpin to bet that its Service Contract No. 72 in the Reed Bank contains world-class commercial oil and gas reserves.

The firm’s plans to send drilling ships had been stymied when our territorial dispute with China flared up in Scarborough Shoal off Zambales island further north, and after Aquino, as well as his foreign secretary Alberto del Rosario, made belligerent statements against China, calling it a bully in the region. The Chinese harassed a ship commissioned by Forum Energy to survey the Reed Bank area in March 2011, although our armed forces claimed they sent vessels to escort the ship to complete its work.

China has rejected offers by Philex Petroleum for a “Framework Agreement” with China National Offshore Oil Corporation, to which it had given exploration rights in Reed Bank, that would allow both firms to explore the area to determine if there are really commercial gas and oil deposits there.

This is where things get murky, but interesting. Senator Antonio Trillanes 3rd is convinced that del Rosario has deliberately been raising tensions with China (see my column “Trillanes: DFA chief deliberately worsened PH row with China,” Nov. 30). Del Rosario’s motive, he says, becomes obvious if one remembers that the foreign secretary had been a close friend and associate of Pangilinan, having been on the boards not only of Salim’s firms here in Manila but of the holding company First Pacific Co. in Hong Kong itself. (Not only that, from the start of his activities in the country in the 1980s, it was del Rosario who introduced him to Manila’s business world.)

Trillanes claims that Pangilinan has realized that there are no viable commercial oil and gas deposits in Reed Bank, pointing to an internet report of the US Energy Information Administration.

Trillanes claims that because of del Rosario’s moves and statements that raised tensions with China, that superpower will be blocking any further exploration at Reed Bank by Philex Petroleum. “Once drilling starts, the true (noncommercial) value of the reserves in SC72 would be known and MVP’s (as Pangilinan is often referred to) partners/stockholders at Forum Energy would start bailing out,” according to an aide memoire written by Trillanes. “MVP stands to lose billions, ” it said.

“This explains the antagonistic stance of Sec. del Rosario toward China,” the document concluded. “He just needs a continuing pretext to delay the drilling until MVP finds an unwitting buyer of their stake and leave their other partners/stockholders holding the empty bag, “ according to Trillanes’ paper.

“Total Fiction”
“An old story, and a total fiction,” Pangilinan replied to my query on the matter. “Not true at all. We have long been wanting to drill, but geopolitics got in the way. The latest iteration is for us to do a seismic survey next year to establish the baseline ecology of SC 72, and determine the stability of the seabed where we might eventually drill.”

Pangilinan explained: “This will be followed by drilling of two appraisal wells in 2016. That’s the latest work program we’ve submitted to the Department of Energy.”

He pointed out: “Now as to whether we can execute or not this program is another matter, as it will be determined largely by geopolitics, over which we have little influence or control. For the record, Sec. Albert del Rosario does not get involved at all with the business of SC72. We make sure there’s a Chinese wall between business and government on commercial matters, despite what some may allege to the contrary. And with respect to our work program on the concession, we report to our regulator, the Department of Energy, not DFA.”

Pangilinan may be right, but what’s indisputable at the moment is that China has given up on Aquino, and has adopted a hard stance against us on the territorial issue as long he is in power.

A win-win solution his predecessors had adopted was to put the sovereignty issue in the background, and for both countries to explore joint undertakings in the disputed area. The most important of such projects, as Pangilinan himself had offered his Chinese counterparts, would be, first, joint exploration, and if that works out, then joint exploitation with an equitable sharing of profits.

“The harsh reality,” an expert on the dispute said, “is obviously that we’ll lose humiliatingly if we fought a shooting war to claim our territories on the Spratly islands.”

“But with a sober leadership, there could have been a possibility for even a 50-50 sharing of the gas and oil found at Reed Bank or elsewhere, which for our country, dependent on imported oil, would have been a boon,” he said.